Rupee hits all-time low of 69.09: Here are 4 reasons why it is taking a beating

The rupee fell past 69 to the dollar for the first time ever on Thursday and hit an intraday low of 69.09, as crude prices continued their week-long rise, and amid concerns of higher inflation and current account deficit.

At 1311 IST, the rupee was trading at 68.88, 0.4 percent weaker than its previous close. On Wednesday, it ended at 68.63, its worst ever closing price vis-à-vis the US dollar since August 28, 2013, when it hit a record closing low of 68.82.

The surge in prices of Brent crude on Thursday led to banks and importers, particularly oil refiners, rushing to buy the greenback. Crude oil prices were at their highest since 2014 as the US' oil inventories witnessed their biggest fall in over two years, and the country reported a new record in exports.

After softening a bit following an announcement by OPEC that it will increase production, crude prices resumed their climb after the US pushed other countries to stop importing crude oil from Iran by November this year.

Other factors weighing on the rupee were the weakness in its Asian peers like the Chinese yuan, the Singapore dollar, the Malaysian ringgit and the Indonesian rupiah. These currencies were all trading in the red because of heightened concerns of a trade war between US and China and fears that it will end up turning into a currency war.

Explained below are four factors contributing to the rupee's fall:

> Crude oil prices

Prices of crude oil have been rising for the past several months, ever since oil cartel OPEC said it would cut supply to stem the fall in prices that was prevalent at the time.

However, despite OPEC now saying that it will increase production by 1 million barrels a day, prices of crude continue to rise. This is because the US recently imposed fresh sanctions on Iran and pushed other countries to stop importing crude from the Middle Eastern nation.

At the same time, the US' own crude inventories witnessed their worst fall in over two years and its exports touched an all-time record.

The price of Brent crude has risen by over 16 percent since the beginning of the year. On Thursday, the commodity was trading at $77.40 a barrel, 0.3 percent lower than its previous closing price.

> Dollar demand

Demand for the dollar has increased significantly over the past week, as is usually the case when crude oil prices surge. Oil importers rushed to buy dollars so that they could import crude as soon as possible, for the lowest price they could get it for.

The rupee started weakening as a result, which prompted banks and other importers to start accumulating the dollar as well. This only amplified the pressure on the domestic currency.

The dollar index, which measures the value of the greenback against a basket of six major currencies, was trading at 95.45 on Thursday, 0.2 percent higher than its previous close. It has risen by over 1 percent since Monday.

> Trade war rhetoric

The ongoing spat between US and China over trade is fast escalating into an all-out trade war and investors are growing more concerned about it with time.

US President Donald Trump has imposed 25 percent duty on Chinese imports worth $50 billion after accusing China of stealing intellectual property. Trump also wants to reduce US' trade deficit with China.

The Chinese, of course, did not take it lying down and were quick to respond with tariffs of their own on $35 billion of US imports. There are growing fears that the trade war may quickly escalate into a currency war, which would be bad for the yuan, yes, but also for other Asian currencies.

> Performance of other Asian and emerging market currencies

Needless to say, the Chinese yuan has fallen quite a bit against the dollar in recent times. It is currently trading at 6.62 against the greenback, 0.2 percent weaker than its previous close, and 5.6 percent weaker than its 2018 high of 6.27, achieved in April.